Thursday, 14 January 2016

Young lose out on state pension

The government has published figures showing that most people retiring over the next 15 years will be gainers from the new flat rate state pension which is being launched in April.

But the calculations also demonstrate how millions of young people could lose out significantly from the reform.

The Department for Work and Pensions says that 73 per cent of those reaching pension age between April and the year 2030 will be better off than if the existing system had carried on, typically by £10 a week.

By 2040, though, most new retirees will be receiving around £11 less.

The new State Pension will pay a higher rate, £155.65 a week rather than the current £119.30,

Although under transitional arrangements very few people will qualify for the exact new amount in the early years - some will be paid more and some less.

The increase is paid for by throwing in all the extra payments available at the moment, such as means-tested Pension Credit and the earnings-related State Second Pension.

By the time people just starting out in the world of work, in their twenties, come to retire, virtually all will qualify for the full flat rate payment.

But what is most interesting about these figures is that this younger group will do much worse than if the current rules were left alone.

69% of those retiring in 2050, now in their thirties, will lose out compared to staying in the current system, typically by £14 a week.

And 76% of those in the 20s will get less, typically £15 less.

In most cases this is because they would never have had the opportunity to contribute to the State Second Pension, the most generous current top-up.